TPP Stakeholders: Business Owners and Investors (Workshop by Sanya Reid Smith)

This article is of interest to Malaysian business owners and investors. For local business owners, protections on infant industries will be removed within the TPP, and competition from other TPP member countries will make it difficult for Malaysian businesses to move up the value chain. For Malaysian investors who have investments overseas, most of their investor rights are already guaranteed under existing treaties and domestic courts overseas. Otherwise, there are many other safeguards that Malaysian investors can turn to without the TPP, such as negotiating better contracts, getting insurance, or performing due diligence to protect their own investments. These will ensure the safety of their investments, without restricting Malaysia’s policy space in the process.

This series is brought to you by based on a recent NGO briefing on the Trans-Pacific Partnership (TPP) in Malaysia by Ms Sanya Reid Smith, an expert on Trade and Investment Rules. She has been monitoring the Trans-Pacific Partnership Agreement (TPPA) since 2011, and is also the resource expert for Bantah TPPA Malaysia. The entire talk is uploaded on YouTube in a seven part series and can be accessed here; this article is drawn mainly from Part 1 and Part 7 of the talk. The index of the series is attached at the end of the article.

Video starts at 5:48

Protection of infant industries will be removed

The goods chapter affects Malaysian SMEs, if you are in the manufacturing sector. If you are making products, where currently you have tariffs from the US and it goes to zero, then they face competition.

And in the future if they want to move into new industries, usually we have what we call an “infant industry protection”. When you move into a new sector like building airplanes, you give them a bit of tariff protection. This is what every country except Hong Kong did to industrialise. Once you have economies of scale and marketing channels, you can compete, so you can then remove the tariffs.

Malaysia will not be able to move up the value chain

But, Malaysia now will be locked at zero tariffs, on all the products from America which has a whole production chain, so it will be difficult to move up the value chain into new sectors because you’ll immediately face competition. So this is the goods chapter.

Video starts at 4:04

Malaysian investments overseas can trust most courts

So people would say, ‘you know if you protect the investors you will protect the Malaysian investors as well, right?’ Number one, are there many Malaysian investors going abroad? Number two, where are they investing?

If they’re investing in USA, Canada, Australia, New Zealand, Japan, probably even Singapore, the domestic courts are pretty good, we trust them. The domestic law is good, the courts are not corrupt, they’re fast, they’re independent of the government, so if anything bad happens to the Malaysian investor in Australia, he can sue the Australian Government, under Australian law, in the Australian courts, and get a pretty good deal. Same for New Zealand, Canada, USA, Japan, Singapore, right? In the US, you get triple damages, very nice.

So where is it that the Malaysian investors need more protection than domestic law and domestic courts? Ok, there’s Brunei, Vietnam, Singapore, already in ASEAN, they already have extra protection for investors under the ASEAN free trade agreement. Malaysian investors in Vietnam can already sue the Vietnamese Government at the international tribunal, compound interest, all of that already. Malaysia already has a treaty with Chile, it already protects Malaysian investors in Chile. That leaves Mexico and Peru.  So Mexico and Peru.

Other options: contracts, insurance, due diligence

So, if Malaysian investors are having such trouble in Mexico and Peru, that they don’t like the domestic law and the domestic courts, they have some options.

Most governments are desperate for foreign direct investment, they say: ‘please come, I will give you anything.’ So if Petronas goes to Mexico, the Mexican Government could sign a contract with Petronas, to protect Petronas’ investment to the same extent as if it was in the TPP investment chapter. Petronas could go to an international tribunal and  get compound interest, expected profits, all protected, everything, and then it just protects the Petronas’ investment in Mexico. It does not restrict Malaysia’s ability to regulate all Mexican investment in Malaysia, including hot money in the stock market. So it’s a very specific solution for that company’s problems, and not restricting general policy space between the two countries.

So, if that contract is not enough, Petronas or the Malaysian investor, Maybank or whoever in Mexico, could take up political risk insurance. They say, ‘if you take over my oil well, I claim from my insurance company lah.’ It’s like in my house, I take out insurance for fire, it’s not the government that pays my insurance, I must pay my insurance. And then I pass the cost on, like Petronas can pass the cost on to consumers or whatever.

If that is not enough, then you could do due diligence, and say ‘look, do I really want to invest in Mexico?’ In capitalism it is supposed to be you sink or swim on your own. Before you invest in Iraq, you see, is there a war going on? Maybe my factory will be bombed? Maybe I don’t want to invest there? Maybe I should invest in a country without a war instead? So this is what you’re supposed to do, due diligence before you invest. That’s capitalism.

Investors should protect themselves

So the previous Australian government, I think, was saying that’s why they’re opposing Investor-State Dispute Settlement, the left-wing Labour Party government. They were saying, ‘look, it’s not the government’s job to protect our investors overseas. They should be protecting themselves. They should do their due diligence, they should take out political risk insurance, they should sign contracts. It’s not the government that gives them free political risk insurance by signing an investment treaty, which restricts the government’s ability to regulate.’ So, for the few Malaysian investors in Mexico and Peru, they have a lot of options, including don’t invest there, invest somewhere safer. That would mean that at least Malaysia is not restricted in its ability to regulate by agreeing to the TPP’s investment chapter.

Index of the Series

This series contains 20 articles on the TPP, and can be read in any order:

Transcriptions are kept chiefly ad verbatim, with some minor edits for readability. The text has also been checked by Ms Smith for accuracy.

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